chairman Vaz Hovanessian.
Photo: SiN Images.
Hovanessian told SiN yesterday he’d spent much of the past fortnight persuading Optus, the company’s main supplier, to continue trading with the beleaguered group.
“If we go into liquidation Optus is going to pull the plug and the only asset we have is the Optus contract,” Hovanessian said.
“The only way is to stay in business, carry on to preserve the contract and you can see why there was frantic negotiations with Optus,” he said, adding the telco was still paying commissions to Strathfield as per the contract.
Hovanessian’s other main job has been shoring up the support of the company’s secured creditor and largest shareholder, Tony Hakim.
“Let’s just say I’ve convinced him that it’s in his own interest and the interest of all stakeholders to do that,” Hovanessian said.
Hakim is expected to continue supporting the company until a Deed of Company Arrangement (DOCA) is put to creditors. He has also agreed to provide an indemnity for the administrators’ costs.
External administrators Andrew Wily and Paul Fury accepted the appointment on the evening of Monday, October 17. Wily told SiN that while the Strathfield Group had once constituted 90-odd stores Australia-wide; tough retail conditions had eroded its profitability. SiN understands a third of the company’s leases are non-performing.
“What they are now starting to focus on is the connect, mobile phone style of business, becoming a mobile phone connections business which is profitable but as you close stores you still carry the weight of all those leases which is some hundreds of thousands of dollars per month of carried forward liabilities, “ Wily explained.
“So either we stop, say no more, kill the whole thing or try and restructure it in some way and put an offer to creditors so we survive and keep going.
“Unfortunately that might mean that the creditors, who are the old leases and so forth, might get offered some cents in the dollar to go away.”
Wily added that the only option, liquidation, would mean they’d get no cents in the dollar.
The first meeting of creditors is scheduled for October 27.
Many of those attending may well experience an unsettling sense of déjà vu.
Strathfield went into voluntary administration and then through the DOCA process in 2009 after Hakim’s Clear Communications acquired 70 per cent of the Strathfield in a scrip for equity swap approved by Strathfield Group shareholders on December 8, 2008.
On January 28, 2009 and just two months after the Clear deal was accepted, Strathfield’s directors felt compelled to place the company into voluntary administration.
BRI Ferrier was appointed and subsequently recommended creditors accept a proposal put up by Hakim despite identifying what appeared to be significant participation in the operations of Strathfield by Clear management in the months before the December deal was consummated.
BRI Ferrier said in its 2009 report to creditors that 32 stores were closed between September 2008 and February 2009.
But Hakim and Hovanessian convinced Strathfield’s secured creditor GE Commercial – which was owed $18 million – to accept $4.5 million in cash and 200 million Strathfield Group shares instead of appointing a receiver.
Likewise Optus, which in 2009 was considering filing a $43 million damages claim, was persuaded to continue supplying Strathfield, an essential part of the current proposal, which is also believed to involve a number of new investors coming on board.
Here’s what Hakim said back in March 2009 when the first Strathfield bail out was approved.
"We want to bring it back to its old glory. We have got big plans. Everybody feels very strongly about the company.
Within six months we will have a SOHO division, where you supply a plasma TV with an iPod, laptop, CCTV, that sort of package, mainly for office homes or home usage.''
Less than three years later Strathfield is again in the hands of insolvency specialists charged with formulating a reconstruction proposal. The difference is that Hakim is now the biggest creditor.
Wily said he expected a deed proposal would be put to creditors sometime in November. “By that time our report would’ve gone out with our recommendations,” he said.
Hovansessian conceded the DOCA proposal would attract plenty of scrutiny given the company’s chequered history.
“There will be scrutiny but I think also that Strathfield is an iconic name that’s been around for 30 years,” Hovanessian said.
“We think it deserves a shot to be kept alive.
“Despite the difficulties morale here is pretty high, the staff are very dedicated and very loyal,” he said.